Davis v. Sheerin

Brief Fact Summary. Davis (D) contends that for his oppressive conduct toward the minority shareholder Sheerin (P), the trial court erred in mandating a forced buy-out of Sheerin’s (P) shares.

Synopsis of Rule of Law. Courts have the option of using forced buy-outs as remedies for oppressive conduct of majority shareholders.

Facts. Sheerin (P) and Davis (D) formed a corporation. Davis (D) was employed in it and ran the regular operations. Sheering (P) received 45 percent of the shares, and Davis (D) received 55 percent. Sheerin (P) wanted to view the corporate books, but was refused unless he produced a stock certificate which Davis (D) contends Sheerin (P) gifted the 45 percent to him years before. Sheerin (P) filed suit for blocking his right to view the books and for oppressing his access to regular operations. The trial court found Davis (D) liable and ordered the buy-out of Sheerin’s (P) stock. Davis (D) appealed on the grounds that buy-out remedies were not available in Texas, and if available, was not appropriate in this circumstance.

Issue. Are buy-out remedies appropriate in cases of oppressive conduct by majority shareholders?

Held. (Dunn, J.) Yes. Courts have the option of using forced buy-outs as remedies for oppressive conduct of majority shareholders. Davis (D) used his position to block Sheerin (P) from access to the corporate books making himself liable for the dissolution of the corporation. The forced buy out was appropriate. Oppression is grounds for the remedy of buy-out. Affirmed.

Discussion. The court tried to determine if weaker remedies would have sufficiently helped Sheerin (P) recovered. Forced buy-outs are drastic remedies that affect basic corporate structure. The court determined that the damages from the oppression were high enough for the buy-out. The key was in reasoning that oppressive conduct would continue in the future and damages would not be limited to just past acts of oppression. Forcing the buy-out prevents future harm.